Will Bitcoin bulls push the BTC price higher ahead of FOMC minutes release?

Bitcoin and Ethereum are tightly correlated with a coefficient of 0.89 but both BTC and ETH prices remained largely unchanged over the past week in anticipation of the FOMC minutes release. The minutes of the US Federal Open Market Committee’s meetings are under the spotlight today as experts look for an explanation for why high inflation could persist in the economy. 

Concluding its December 13-14 meeting, FOMC policy makers published new projections for expected inflation in 2023 which were higher than previously thought. This has resulted in wider support from experts for an interest rate increase of over 5% in 2023, something which could push up the value of the US Dollar. 

The US Dollar Index is struggling to hold ground and if it falls following the minutes it would be positive for cryptocurrencies. The event, therefore, could turn out to be the year’s first silver lining for risk assets like Bitcoin which enjoy an inverse correlation with DXY. 

Will Bitcoin price break resistance at $16,900 as bulls anticipate FOMC minutes release?

BTC price remained largely unchanged over the past week. The US Federal Reserve has raised interest rates seven times in a row and the consensus among analysts is that this will repeat at the end of January 2023. 

The majority of the economists expect a 25 basis point hike to level off the trend from the US Fed. In the last meeting, US Fed Chair Jerome Powell admitted that interest rates would keep going up, however, the hawkish tone of the central bank did not have a significant impact on cryptocurrency prices. 

Bloomberg analysts believe that the Fed is expected to provide an explanation for why it anticipates high inflation to persist as the US economy enters 2023, in its minutes today. Fed officials revised their inflation forecasts for the end of 2023 and released them after their December 13-14 meeting. Experts are therefore supportive of the estimate that interest rates would need to increase over 5% in 2023. 

The largest cryptocurrency by market capitalization bounced from a possible entry zone at $16,615 and bulls are now targeting the $16,904 level.

BTC/USDT price chart 

The Fed will publish the minutes of the FOMC meeting on Wednesday at 14:00 ET (19:00 GMT). 

Ethereum and Bitcoin remain tightly correlated

Based on data from cryptowatch, the correlation between Bitcoin and Ethereum is tight, at 0.89. The two large cryptocurrencies are in lockstep, therefore the altcoin is expected to mirror BTC’s moves. 

Digital assets including Bitcoin and Ethereum are not out of the woods, however, according to senior market analysts at foreign exchange cooperation OANDA. Edward Maya, senior analyst was quoted as saying:

This is still a difficult time for crypto as everyone waits to see which will be the next crypto company to fail. Regulation is taking its time but guidelines should start to take hold this year.  A top US regulator delivered a joint warning on crypto activities, which did not contain any new risks. Bitcoin appears anchored but it is still not clear when we will test and possibly make a new bottom.

The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a statement,

It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system. The agencies will continue to closely monitor crypto-asset-related exposures of banking organizations.

With agencies monitoring the spreading FTX contagion and highlighting the importance of crypto regulation, it remains to be seen whether interest and trade volume in Bitcoin and Ethereum steadies or declines. 

Why FOMC minutes could have a big impact 

Sources close to the matter argue that the minutes from December’s meeting could have a bigger impact due to members of the committee having been silent since the holidays. Traders setting up for the coming year will treat the minutes as the first explanation for the year of the US Fed’s take on inflation trends. 

The US Fed Chair was not the only hawkish member at the last meeting when the median rate expectation was boosted from 4.5% to 5.0%, meaning that the consensus among members is more hawkish than it was at the end of the third quarter.